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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 3 Crore made under section 68 of the Income Tax Act for the Assessment Year 2007-08. The AO had treated share capital and premium received from investor companies as undisclosed income as the source was not satisfactorily explained.
Held
The Tribunal held that the assessee had established the identity and genuineness of the share applicants and the transactions were through banking channels. The Revenue failed to provide evidence that the money originated from the assessee's own sources.
Key Issues
Whether the CIT(A) erred in deleting the addition of share capital and premium money where the Revenue failed to prove the funds originated from the assessee's own undisclosed income.
Sections Cited
143(3), 68
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Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: MS. MADHUMITA ROY
ORDER PER AMITABH SHUKLA, AM,
This appeal by the Revenue is directed against the order of THE Ld. Commissioner of Income Tax(Appeals)-13, New Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 21.10.2016 arising out of assessment order dated 30.03.2015 passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2007-08. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The Revenue has raised following grounds of appeal:-
(i) On the facts and in the circumstances of the case and in law the order deleting the addition u/s 68 of the I TAct by not appreciating the proposition that relief can be allowed only after completing the fact finding process as held by the Hon'ble Delhi High Court in the following cases: (a) CIT Vs Nova Promotors & finlease Pvt. Ltd. (2012)342 ITR 169 (b) CIT Vs Youth Construction Pvt. Itd. (2014) 44 Taxman 364 (c) CIT Vs Navodaya Castles Pvt. Itd. (2014) 50 Taxman 364 (d) CIT Vs MAT Academy Pvt. Ltd. (2014) 361 ITR 258 (ii) On the fact and circumstances of the case the Ld. CIT Appeal was erred in deleting the addition of Rs. 3 Crore made on account addition u/s 68 of the IT Act without appreciating facts that the assessee failed to explain the same in his books of account during the course of assessment proceeding and remand report proceedings (iii) On the facts of the case, assessee relied on the judgement of the Supreme Court in the case of CIT Vs Lovely Exports Pvt. Ltd. 2008) 2016 ITR 195. The Ld CIT(A) without appreciating the facts that the Hon'ble ITAT Mumbai in the case of Royal Rich Developers Pvt. Itd. Vs DCIT says that lovely Exports case is not applicable after the Money Laundering Act.
We have heard rival submission in the light of material available on record. As per brief factual matrix of the case Return of Income was filed for the AY 2007-08 on 14.11.2007 declaring 'Nil' income. The case was selected for scrutiny and the AO examined the sources of introduction of fresh share capital and of share premium during the year. The AO found total addition to the share capital account of Rs.12,00,00,000/- and of share premium of Rs. 11,76,00,000/-. An addition of Rs.24,00,00,000/- was made u/s 68 vide the order u/s 143(3) dated 31.12.2009. This order was confirmed in toto vide the order of the CIT(A)-21 dated 25.03.2011. However, in appeal before the ITAT, Delhi, the assessment was set aside to the file of the AO to be decided de novo,
Page 2 of 5 on the grounds that proper and reasonable opportunity of being heard had not been allowed by the AO and the CIT(A). The fresh assessment u/s 143(3) was completed on 30.03.2015 on a total income of Rs. 3,00,00,000/- The AO held that the share application money, including the share premium, comprised a sum of Rs. 3,00,00,000/- which had been routed several times over through the bank accounts of the three investor companies and of the appellant. The AO held that the source of Rs.3,00,00,000/- introduced in the bank account of the appellant as share capital and share premium amounting to Rs. 12,00,00,000/- had not been satisfactorily explained. The addition of Rs. 3,00,00,000/- was made u/s 68 by placing reliance on a number of judgments of the Delhi High Court including in the case of CIT vs. Nova Promoters & Finlease Pvt. Ltd.
(2012) 342 ITR 169. The ld. First Appellate Authority after considering the arguments of the assessee in the light of material placed before him accorded relief by deleting the impugned addition while holding as under:-
“The appellant has relied on a number of case laws to argue that the appellant cannot be held liable for the genuineness and creditworthiness of the creditors of his creditors. Moreover, the transactions of investment in the investor companies has been accepted by the Department in the orders u/s 143(3) in the cases of the investor companies. The appellant has argued that once the initial onus has been discharged by him, it was for the AO to prove that the credits in these companies names was undisclosed income of the appellant. The appellant has cited a number of decisions of the jurisdictional High Court including the case of CIT vs. Shiv Dhooti Pearls & Investment (2015) (12) TMI 1291 wherein it was held that a bald assertion by the AO that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its books could be of no Page 3 of 5 avail without proof. The appellant has also relied on the judgment of the Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. 2008) 216 CTR 195, wherein the decision of the Delhi High Court was upheld that if the share application money was alleged to be received from bogus share holders, the share money could be brought to tax in the hands of the said share holders, but not in the hands of the company on account of bogus share application. I have carefully gone through all the evidences filed by the appellant company regarding the creditworthiness of the share applicants, comprising their audited accounts, ITs and assessment orders u/s 143(3). The director of the investor companies attended the proceedings before the AO and confirmed the investment made in the appellant company. The AO had carried out various investigations into the legitimacy of the share capital introduction. It has to be accepted that the AO failed to unearth any evidences that then overwhelmingly converted the allegation or suspicion into proof. The courts have held that the initial onus of proving genuineness of the cash credit lies on the assessee, however, once the identity is established, the burden shifts to the Revenue to prove that the money advanced by the creditor does not belong to him, but to the assessee. After considering all the facts and circumstances and the judicial pronouncements of the Delhi High Court and the Supreme Court, it is concluded that the appellant company has established the identity of the share applicants and genuineness of the transactions, which are through banking channels. In the absence of any evidence that the money received by the appellant in the form of share application had come from its own sources, the addition made by the AO of Rs.3,00,00,000/- is hereby deleted.”
The only issue seminal to the controversy is regarding the source of Rs.3 Crores in the bank account of the appellant, claim to be share capital and share premium money received from its holding company. The ld. DR vehemently argued in favour of the order of the lower authorities. We have however noted that the ld. CIT(A) has accorded the relief after carefully analyzing the facts of the case and by correctly applying the contemporaneous law. Accordingly, we are of the view that no case of any intervention is made out to the order of the Page 4 of 5 Ld. CIT(A) at this stage. The grounds of appeal raised by the Revenue are therefore dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 09th March, 2026.